Corporate pensions’ $61 billion funded status gain in January may cushion early February market slide

Milliman today released the results of its latest Pension Funding Index (PFI), which analyzes the 100 largest U.S. corporate pension plans. While market movement in February may dampen January’s gains, during the first month of 2018 corporate pensions experienced their largest funded status improvements in over a year.

According to Milliman’s analysis, these plans experienced a funding status increase of $61 billion in January, and saw their funded ratio rise from 84.1% at the end of December to 87.2% as of January 31. The improvement is the result of investment gains due to strong market performance and a reduction in liabilities (which was due to an increase in the benchmark corporate bond interest rates used to value pension liabilities).

January’s stellar funding gains may help to cushion the effect of the current market slide witnessed in February thus far for these pensions. It will be interesting to see if the recent volatility paired with U.S. tax reform changes incentivize plan sponsors to pursue funding and de-risking strategies more aggressively than they have in the past.

Looking forward, under an optimistic forecast with rising interest rates (reaching 4.29% by the end of 2018 and 4.89% by the end of 2019) and asset gains (11.0% annual returns), the funded ratio would climb to 99% by the end of 2018 and 115% by the end of 2019. Under a pessimistic forecast (3.19% discount rate at the end of 2018 and 2.59% by the end of 2019 and 3.0% annual returns), the funded ratio would decline to 81% by the end of 2018 and 74% by the end of 2019.